WASHINGTON — Anyone looking for Treasury Secretary Tim Geithner to endorse a specific approach to the future of the housing finance system was surely disappointed by his testimony Tuesday to the House Financial Services Committee, where he repeatedly declined to take a concrete stand.

Yet much could still be gleaned from Geithner's comments, as he specifically criticized one approach and noted disadvantages with others, providing vital clues to how the administration wants to approach the future of the government-sponsored enterprises.

Geithner saved his toughest rhetoric for one proposal that would largely remove the government from the mortgage market, warning Republicans that might find it attractive that it could still leave the taxpayer on the hook in the event of a future crisis.

"I would caution people on this side of the aisle to say that it would be tempting to look at the FHA-only option and say, 'Oh, the government [backstop] will be more limited in that context,' " Geithner said. "But that's not necessarily the case, because what it means is that all the risk is with banks. The government does provide support to banks. The guarantee is then implicit. The government doesn't pay for it. The taxpayer is not necessarily better protected."

He also emphasized that in such a scenario, the government would lack much power to help alleviate problems in the market, as its only role would come through the Federal Housing Administration.

"The disadvantage of just option one, just to be fair about it, is that you would leave the government of the United States with a more limited set of tools to protect the economy and the sort of innocent victims in the face of the next severe recession," Geithner said. "If your only option in a crisis is to have FHA scale up dramatically, the taxpayer is much more exposed to risk on an FHA product than it would be in those other options."

The hearing on Tuesday was Geithner's first appearance since the administration outlined on Feb. 11 three options for reforming the GSEs. Option one called for the government to significantly dial back government support, leaving just the FHA and a few other targeted programs to help low-income borrowers.

Option two would follow a similar route, but called for the development of a government guarantee that could scale up in bad economic times and reduce during boom times.

Option three would allow a group of private mortgage companies to provide guarantees for mortgage-backed securities that met certain strict underwriting criteria. A government entity would then provide reinsurance to the holders of the securities, which would only be paid if shareholders were entirely wiped out. The government would charge a premium for its reinsurance that would be used to offset losses to taxpayers.

Although many observers think the administration is leaning toward options two or three, Geithner also criticized those approaches during the hearing.

"There is a credible argument that if Congress were to embrace something more like two or three that would leave the mortgage market too concentrated and create an unlevel playing field for community banks," Geithner said. "That's one factor you have to look at very carefully. What we want is a system where you have a better-designed securitization market existing alongside banks, and we want a banking system that is not maturely more concentrated than the one we have today."

He did, however, defend option three against observers who argue it is essentially Fannie Mae and Freddie Mac by another name.

"It is not fair to say that option three is an option that would recreate Fannie and Freddie," Geithner said. "And I would note that I would not support that."

For their part, House Republicans appeared open to working with the administration, with many noting areas of commonality.

"The white paper actually proposes four things that Republicans have also proposed and many Democrats," said House Financial Services Committee Chairman Spencer Bachus, R-Ala, who noted the administration is seeking to lower the GSEs' conforming loan limit and wind down their mortgage portfolios.

Rep. Scott Garrett, R-N.J., the chairman of the capital markets subcommittee, echoed a similar sentiment.

"I'm glad that the administration has finally decided that the government should basically be out of the business of subsidizing those people who are rich in order to buy a house," Garrett said. "I also see a number of areas of continued agreement between the administration and myself."

The situation was not lost on Rep. Barney Frank, the former chairman of the panel and now it’s ranking Democrat, who noted that GOP leaders were anxious last year to legislate to shut down the GSEs and now appear to want to work something out.

"I am struck at what a difference an election makes," Frank said. "Last year, there was this insistence on passing something and a criticism that it wasn't passed. So today, we have a very reasonable attitude of work with the administration."

But Rep. Jeb Hensarling, R-Texas, for one, was displeased by the administration's approach, arguing it should commit itself to one plan.

"Do you support the three options that were just presented? I think I heard you say, 'Not necessarily.' And if that is correct, we waited two years for this? Did I understand your answer correctly?" Hensarling asked.

Geithner said the administration wants to work with Congress before moving forward.

"One reason why we've been so careful not to lock in a path for phasing out the government's role is there's no certainty in this context and we have to be careful again not to do damage to the recovery," Geithner said.

He also said that so many of the details remained to be worked out on each of the three approaches.

"You could design option one in a way that would have a very substantial role for the government in crisis, it would be worse than the other options. You could design option three in a way where the government has much less exposure to loss in the crisis," Geithner said.

Lawmakers on both sides of the aisle questioned whether option three would be much of an improvement over the current system, noting that it, too, might require a massive government bailout.

"If this backstop is implemented, doesn't it resemble a sort of bailout, in the sense that it would protect private market agents without asking for any financial support from them in return?" asked Rep. David Scott, D-Ga.

Hensarling raised questions about whether the government could appropriately charge premiums under option three or create an effective guarantee under option two.

"In speaking of option two and three, I'm still concerned about the ability of the government to be able to accurately price for risk," Hensarling said.

Geithner acknowledged that was an issue.

"It's one of the reasons why you have to be careful in embracing any of the three options on the table," he said.

Geithner was also pressed by lawmakers on which of the three options would be most costly to homebuyers.

"Under any of these options the cost of a mortgage is going to be higher in the future," Geithner said. "That's a sort of fundamental reality we face.

While the Treasury Department has looked at a range of estimates, it's unclear what the ultimate impact will be.

"Until you look precisely at what version of option one, two or three, or which mix of those options you would do, you can't tell," Geithner said. "You'll know they'll be higher, I think modestly higher, but different degrees of increase depending on the mix of those options you ultimately embrace."

Geithner did set a time line for Congress to act, saying lawmakers must pass a bill within two years.

"If we can move more quickly than that, we'd welcome that chance," Geithner said. "But we can't put this off indefinitely or leave the market with too much uncertainty. That'll make it harder to get private capital to come in and replace the role the government's playing today."

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